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07 Nov 2018

Ofgem RIIO2 business plans – what do we know so far?

On the 5th November 2018, Ofgem hosted a workshop in London with interested parties to review their proposed approach and structure to RIIO-2 business plans, and the associated timescales they are working towards.

What we do know so far is that Ofgem have outwardly signalled that ‘they'll be tougher on network companies to deliver innovation, reliability and investment at the least cost to consumers.’ The workshop was attended by both gas and electricity distribution and transmission networks alongside interested parties. Explain attended the workshop, sharing our insight and cross sector regulatory business planning experience.

It was evident that the timescales are closing in for gas and electricity transmission and gas distribution with sector methodologies set to be published at the end of 2018 and initial submission of business plans to Ofgem by July 2019 in advance of RIIO-T1 and GD1 ending in 2021. For electricity distribution their business planning period ends in 2023 and they are now in preparation for RIIO-ED2.

In this blog we will provide insight into some of the emerging themes that Ofgem have signaled as significant as part of the RIIO-2 price controls, and share what we have learnt from our own experience of delivering insight to support business planning throughout RIIO-1 and most recently PR19 in the water sector.

Approach to RIIO-2 business plans

Ofgem have signaled that they will publish more detail on the proposed methodology and approach to business plans in Q4 of 2018 as part of the sector methodologies. Initial indications yesterday, highlighted that they want to see less variance in terms of layout and structure of the individual plans, and have established a high-level content outline which includes the following:

Base scenario (current performance/starting point)

Forecast expenditure

Managing uncertainty and risk

Outputs - what will be delivered, both common and bespoke which need to be evidenced

Innovation - focus on ‘whole system’ approach and collaboration across networks and beyond the utility sector

Competition

Finance

Workforce resilience; and

Stakeholder engagement – which includes stakeholder challenge

Timescales

The area of concern raised from both gas and electricity transmission and gas distribution was around the timescales that Ofgem have put in place to deliver first drafts of business plans.

Ofgem announced at the workshop that they will consult on sector specific methodologies in December 2018 and will issue a sector specific methodology decision in early Q2 of 2019, these are in line with the timescales that were presented in the Framework Decision earlier this summer.

To deliver in line with timescales Ofgem must receive companies’ business plans by the end of 2019. The dates provided at the workshop included:

October 2019 – second submission of draft plans to Challenge Group/Ofgem

December 2019 – Submission of final plans

Shared learning – PR19

To deliver a best in class business plan which meets the objectives of Ofgem, network companies need to ensure that they take learning and best practice from not only RIIO-1 but also have cross sector stimulus. An example of this is the most recent phase of business planning in the water sector, PR19.

Ofgem will be looking for detail and clarity on a range of topics outlined earlier in this blog, several areas draw influence and similarity to the water sector, these areas include:

Managing uncertainty and risk

Outputs

Innovation; and

Stakeholder engagement

The team at Explain have been conducting independent research and engagement within the water sector for over 20 years working throughout PR09, PR14 and PR19. They are experts at putting in place research programmes to deliver against the changing needs of the sector. Throughout PR19 Explain delivered research and engagement into a range of topics which translate directly into areas that need to be considered as part of any RIIO-2 business plans, these include:

Exploratory research to understand customer views on trust and value for money

Co-creative research to define the areas of service customers most wanted to discuss and influence, later quantified among a representative customer base

Explorative research into customer views on resilience and their expectations around companies’ approach to this

Long-term engagement through an online community of customers and stakeholders

Testing service commitments – to gain insight into the priorities and expectations on how water companies should shape their business plan in order to meet expectations

Qualitative research titled ‘A conversation with vulnerable customers’ – which explored the views of customers in circumstances which may make them vulnerable. Stakeholders and other representatives were also consulted within this research

Performance Commitments (PCs) and Outcome Delivery Incentives (ODIs) – evidencing that customer and stakeholders actively participated and co-created to shape and influence their development within business plans.

Explorative research to examine customer perceptions and expectations of service

A gamification tool to gain meaningful and robust insights into customer’s preferences and priorities

Acceptability testing of business plan amongst customers

Unpicking the regulatory framework, why Explain?

Explain has worked within the utilities sector for two decades, working in contracted partnerships with several of the UK’s biggest and most respected suppliers and distributors. These relationships have allowed Explain to develop an in-depth understanding of the importance of consumer and stakeholder engagement, ensuring we engage with the end user to deliver insights that support and are aligned to business planning.

Why Explain:

Independent: You can be confident that our advice will be impartial, open and focused on delivering robust insight to support business planning throughout RIIO2

Bespoke solutions: Offering a range of research methodologies from the traditional to the innovative, always focussing on the best approach to deliver robust insights ensuring we engage with the end user

Business planning experience: With experience of customer and stakeholder engagement in the water and utility sector through RIIO-1, PR09, PR14, and most recently PR19 we are adept at engaging with customer and challenger groups, alongside core customer research to ensure we deliver representative results

Research that unlocks insight: Delivering a range of research solutions through a mix of methodologies to deliver insights including: business planning strategic reviews, stakeholder research, customer research, vulnerable customer research, brand awareness and perceptions and public consultation.

We will continue to share our experience and best practice, and in our next blog we will explore – ‘what is best in class engagement.’

For further information on how we can support you, please contact Holly Shiel-Redfern at holly.shiel-redfern@explainresearch.co.uk